5 ms·

2024 paper (40 pages) by Stephen Miran, current chair of the Council of Economic Advisers, which has influenced tariff policy, https://www.hudsonbaycapital.com/

2024 paper (40 pages) by Stephen Miran, current chair of the Council of Economic Advisers, which has influenced tariff policy, https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese... The root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella, as the manufacturing and tradeable sectors bear the brunt of the costs... Tariffs provide revenue, and if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects.. Finally, I discuss a variety of financial market consequences of these policy tools, and possible sequencing. blog review/opinion, https://simplicius76.substack.com/p/trumps-liberation-day-another-pr https://simplicius76.substack.com/p/trumps-liberation-day-an... > One of the core tenets of the document is the deliberate devaluation of the US dollar in order to make US exports favorable again.. a country which holds the world’s reserve currency faces a significant dilemma.. to keep its currency as reserve status—and reap all the geopolitical benefits this creates—the country must hamstring its own economic output by running a huge trade deficit, which means the country imports far more than it exports, which hurts—or in the case of the US, kills—domestic manufacturing. >... if a French person buys a $50K Ford truck and imports it to France, that’s $50K USD that leaves France and goes back to the US, lowering France’s dollar holdings. If an American buys a $50K French Peugeot to import it to the US, he sends his $50K USD to France, which increases its dollar holdings.. to maintain the dollar’s reserve status.. US dollars are constantly flooding the world.. running a massive trade deficit where imports of foreign goods (outflow of USD) far outweigh exports of domestic goods (inflow of USD).

Centigonal 2y ago
> As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella I don't understand. US share of global GDP is around where it was in 1980, and in 1995[1]. Is Miran arguing that America's "exorbitant privilege" of being the source of the world's reserve currency, literally being able to buy goods from any country in the world with money printed out of thin air, is actually a liability? [1] Page 8 of his paper EDIT after reading through Chapter 2 of the paper: Thank you for sharing this. I don't agree with many of the arguments Miran is throwing out so far, but at least it's self consistent. He is saying: 1. If the US's global share of GDP decreases, then a set of global economic factors will cause the US to keep having to take on deficits to fund the rest of the world's desire for USD (because that is the world's reserve currency). If the US becomes small enough relative to the world economy, then this pressure will cause the US to risk defaulting on its debt. 2. The US's status as the reserve currency issuer means US dollars are artificially expensive. This means that low margin, high-labor industries like manufacturing can't thrive in the US. This is a national security risk because China/Russia can make lots of tanks/drones/etc and we can't. 3. The US benefits from being the reserve currency issuer because it can use that power to project force worldwide and maintain national security. 4. (He doesn't say this, but implies it in that coy way that people who read The New Criterion like to do) #1 is an unacceptable risk for America, and the US should employ a range of unilateral or multilateral measures to reshape the global financial system in a way that devalues the US Dollar, strengthens US manufacturing, and forces US trading partners (esp. other liberal democracies) to subsidize the US's status as the reserve currency issuer, since the US provides a global hegemony that is beneficial to them. Also, having read portions of the Project 2025 "Mandate for America," it's really interesting to me how all of these right wing thinktank writers (Russ Vought, Max Primorac, and now Miran) seem to share the same writing style.
- AyyEye 2y ago
  You and I don't get to print money. Other classes do.
  - elcritch 2y ago
    Even being “close” to where the money is printed gives you enormous benefits. Average Americans don’t get this. Companies like Black Rock gain enormous power over the US and other nations.
- sebmellen 2y ago
  Yes, it is a liability, because in exchange for your reserve currency status you are indebting your country. Gradually, as you outsource more and produce less, your country derives more and more of its returns from soft economic assets (financial markets, legal structures, software, pharma, IP, etc.), than hard economic assets (commodities, energy, manufacturing, transportation, logistics, etc.). In the long run, this hollows out your industrial base, drives income inequality (because labor is devalued when products/soft assets have zero marginal cost of replication), and defangs your country. Said differently — vertical integration is the key to “innovation” in the abstract. You can see this with BYD. With the above in mind, let’s say your goal as a country is to develop your industries so you can achieve vertical integration. Soft economic assets are easier to bootstrap once you have hard economic assets. If you lose your hard economic assets and only have soft ones, you are at a strategic disadvantage because your opponent (in this case China), can bootstrap their soft assets relatively quickly. By comparison, it will take you much longer to get your hard assets back (through the mythical process of “reshoring/reindustrialization”). All that being said, this is not a commentary on the effectiveness of the tariff policy of the Trump administration.
  - Centigonal 2y ago
    Thanks for the explanation! Most of what you wrote makes sense to me. In particular, I think the concept that going hard -> soft economic assets is easier than the reverse is really interesting. I'll have to think on that more. Things that still give me pause: 1. I don't understand why hard economic assets like manufacturing are more heavily impacted by this phenomenon. Wouldn't exporting a $50,000 car and a $50,000 software license have the same impact on the country's current account? I think it might have something to do with the marginal cost of replication point you made, but, for example, the marginal cost of manufacturing semiconductors is very small, and we trail in that too. 2. I disagree with your assertion that 'vertical integration is the key to “innovation” in the abstract.' I think this is often true, because vertical integration enables more control/flexibility and faster iteration, which allows innovation to occur. However, there are many cases (e.g. fabless semiconductors, meat poultry farming, software companies build on the cloud) where the innovation was actually to split the value chain into separate concerns with separate concerns.
Majromax 2y ago
I know that a quotation is not necessarily an endorsement, but this is a fantastically short-sighted idea. > it becomes increasingly burdensome for the United States to finance the provision of reserve assets How dare countries want pictures of dead Presidents so badly that... they're willing to send real goods to the United States for its consumption, with no expectation of reciprocation. > and the defense umbrella ... and agree to a de-facto policy of minimal militarization, such that they could not pose a threat to America's global security interests, no matter what it decides those are. A few hundred years ago, this would look like a tribute system. It's unfathomable that a nation in such a privileged position would decide it's tired of such a systematic set of advantages. > as the manufacturing and tradeable sectors bear the brunt of the costs... What's the saying, they've tried nothing and are all out of ideas? Industrial policy is a known and understood thing. The US has this in its defense sector even it doesn't want to admit it, and the CHIPS act was another attempt for the semiconductor industry. This sort of policy is far more targeted and far less disruptive than blowing up international supply chains in hope of repatriating sweat-shop sneaker sewers and factories for five cent injection molded widgets.
- sebmellen 2y ago
  You’re right about all you say. But the US has struggled to implement even the simplest forms of industrial policy because other countries are so extremely price-competitive, and our markets so unbridled, that our “elites” have eroded our industrial base to drive shareholder returns. If not through tariffs, how else do you force reindustrialization? Industrial policy will always fail if it’s driven by a chimeric political system where both sides are incentivized to grow “The Economy” by eroding domestic capacity. The CHIPS Act is too little, too late (when you’re competing with a fast-accelerating rival that is simultaneously your largest debt-holder and main industrial base).
  - percentcer 2y ago
    Why is it important to force reindustrialization?
    - 2y ago
sorcerer-mar 2y ago
> Why must a country run a trade deficit to retain its global reserve currency status? Because when your currency is the global reserve currency, the entire world constantly hungers for it in order to use it in all the various countries’ international trade between each other. The only way to keep those countries constantly supplied with dollars is for Americans to buy tons of foreign imports, which effectively sends dollars to those countries, since these purchases are made with dollars So... the problem with the US being the reserve currency is that it makes other countries cater to our tastes because they want our money...?
- bgnn 2y ago
  Yes, abd this appreciates USD, in turn makes production costs in US high, so the rest of the world doesn't buy what US produces. It is by itself sustainable though as US doesn't only export produced goods but tech etc which the world wants. A valuable dollar funds this tech, in a sense whole world funds the US trch sector.
  - sebmellen 2y ago
    Not only “in a sense,” but also directly — many of the parent or grandparent LPs to US venture firms are foreign wealth funds, and US tech companies are (by way of our capital markets) held as an investment by many foreign nations (e.g. Norway’s sovereign wealth funds). So we enrich foreign nations through our technology companies and capital markets. This is to the detriment of our domestic laborers, but it’s a great deal for our top ~30% “laptop class” that earn disproportionately well and have their savings stored in those same markets.
    - zip1234 2y ago
      I'm not even sure that it is to the detriment of our domestic laborers. It certainly makes domestic manufacturing less competitive, especially the lowest skill/barrier to entry manufacturing. However, the US manufactures a LOT still, there are loads of reasonably well paying jobs for lower skill worker. I will say that housing and healthcare costs are high in the US but those are not things that are imported.
insane_dreamer 2y ago
The counterpoint to this is that the US as the reserve country means that it’s very cheap for the US to service its debt since it’s holds the money supply. It basically controls its own destiny in that sense.

Centigonal 2y ago

> As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella I don't understand. US share of global GDP is around where it was in 1980, and in 1995[1]. Is Miran arguing that America's "exorbitant privilege" of being the source of the world's reserve currency, literally being able to buy goods from any country in the world with money printed out of thin air, is actually a liability? [1] Page 8 of his paper EDIT after reading through Chapter 2 of the paper: Thank you for sharing this. I don't agree with many of the arguments Miran is throwing out so far, but at least it's self consistent. He is saying: 1. If the US's global share of GDP decreases, then a set of global economic factors will cause the US to keep having to take on deficits to fund the rest of the world's desire for USD (because that is the world's reserve currency). If the US becomes small enough relative to the world economy, then this pressure will cause the US to risk defaulting on its debt. 2. The US's status as the reserve currency issuer means US dollars are artificially expensive. This means that low margin, high-labor industries like manufacturing can't thrive in the US. This is a national security risk because China/Russia can make lots of tanks/drones/etc and we can't. 3. The US benefits from being the reserve currency issuer because it can use that power to project force worldwide and maintain national security. 4. (He doesn't say this, but implies it in that coy way that people who read The New Criterion like to do) #1 is an unacceptable risk for America, and the US should employ a range of unilateral or multilateral measures to reshape the global financial system in a way that devalues the US Dollar, strengthens US manufacturing, and forces US trading partners (esp. other liberal democracies) to subsidize the US's status as the reserve currency issuer, since the US provides a global hegemony that is beneficial to them. Also, having read portions of the Project 2025 "Mandate for America," it's really interesting to me how all of these right wing thinktank writers (Russ Vought, Max Primorac, and now Miran) seem to share the same writing style.

AyyEye 2y ago
You and I don't get to print money. Other classes do.
- elcritch 2y ago
  Even being “close” to where the money is printed gives you enormous benefits. Average Americans don’t get this. Companies like Black Rock gain enormous power over the US and other nations.
sebmellen 2y ago
Yes, it is a liability, because in exchange for your reserve currency status you are indebting your country. Gradually, as you outsource more and produce less, your country derives more and more of its returns from soft economic assets (financial markets, legal structures, software, pharma, IP, etc.), than hard economic assets (commodities, energy, manufacturing, transportation, logistics, etc.). In the long run, this hollows out your industrial base, drives income inequality (because labor is devalued when products/soft assets have zero marginal cost of replication), and defangs your country. Said differently — vertical integration is the key to “innovation” in the abstract. You can see this with BYD. With the above in mind, let’s say your goal as a country is to develop your industries so you can achieve vertical integration. Soft economic assets are easier to bootstrap once you have hard economic assets. If you lose your hard economic assets and only have soft ones, you are at a strategic disadvantage because your opponent (in this case China), can bootstrap their soft assets relatively quickly. By comparison, it will take you much longer to get your hard assets back (through the mythical process of “reshoring/reindustrialization”). All that being said, this is not a commentary on the effectiveness of the tariff policy of the Trump administration.
- Centigonal 2y ago
  Thanks for the explanation! Most of what you wrote makes sense to me. In particular, I think the concept that going hard -> soft economic assets is easier than the reverse is really interesting. I'll have to think on that more. Things that still give me pause: 1. I don't understand why hard economic assets like manufacturing are more heavily impacted by this phenomenon. Wouldn't exporting a $50,000 car and a $50,000 software license have the same impact on the country's current account? I think it might have something to do with the marginal cost of replication point you made, but, for example, the marginal cost of manufacturing semiconductors is very small, and we trail in that too. 2. I disagree with your assertion that 'vertical integration is the key to “innovation” in the abstract.' I think this is often true, because vertical integration enables more control/flexibility and faster iteration, which allows innovation to occur. However, there are many cases (e.g. fabless semiconductors, meat poultry farming, software companies build on the cloud) where the innovation was actually to split the value chain into separate concerns with separate concerns.

Majromax 2y ago

I know that a quotation is not necessarily an endorsement, but this is a fantastically short-sighted idea. > it becomes increasingly burdensome for the United States to finance the provision of reserve assets How dare countries want pictures of dead Presidents so badly that... they're willing to send real goods to the United States for its consumption, with no expectation of reciprocation. > and the defense umbrella ... and agree to a de-facto policy of minimal militarization, such that they could not pose a threat to America's global security interests, no matter what it decides those are. A few hundred years ago, this would look like a tribute system. It's unfathomable that a nation in such a privileged position would decide it's tired of such a systematic set of advantages. > as the manufacturing and tradeable sectors bear the brunt of the costs... What's the saying, they've tried nothing and are all out of ideas? Industrial policy is a known and understood thing. The US has this in its defense sector even it doesn't want to admit it, and the CHIPS act was another attempt for the semiconductor industry. This sort of policy is far more targeted and far less disruptive than blowing up international supply chains in hope of repatriating sweat-shop sneaker sewers and factories for five cent injection molded widgets.

sebmellen 2y ago
You’re right about all you say. But the US has struggled to implement even the simplest forms of industrial policy because other countries are so extremely price-competitive, and our markets so unbridled, that our “elites” have eroded our industrial base to drive shareholder returns. If not through tariffs, how else do you force reindustrialization? Industrial policy will always fail if it’s driven by a chimeric political system where both sides are incentivized to grow “The Economy” by eroding domestic capacity. The CHIPS Act is too little, too late (when you’re competing with a fast-accelerating rival that is simultaneously your largest debt-holder and main industrial base).
- percentcer 2y ago
  Why is it important to force reindustrialization?
  - 2y ago

sorcerer-mar 2y ago

> Why must a country run a trade deficit to retain its global reserve currency status? Because when your currency is the global reserve currency, the entire world constantly hungers for it in order to use it in all the various countries’ international trade between each other. The only way to keep those countries constantly supplied with dollars is for Americans to buy tons of foreign imports, which effectively sends dollars to those countries, since these purchases are made with dollars So... the problem with the US being the reserve currency is that it makes other countries cater to our tastes because they want our money...?

bgnn 2y ago
Yes, abd this appreciates USD, in turn makes production costs in US high, so the rest of the world doesn't buy what US produces. It is by itself sustainable though as US doesn't only export produced goods but tech etc which the world wants. A valuable dollar funds this tech, in a sense whole world funds the US trch sector.
- sebmellen 2y ago
  Not only “in a sense,” but also directly — many of the parent or grandparent LPs to US venture firms are foreign wealth funds, and US tech companies are (by way of our capital markets) held as an investment by many foreign nations (e.g. Norway’s sovereign wealth funds). So we enrich foreign nations through our technology companies and capital markets. This is to the detriment of our domestic laborers, but it’s a great deal for our top ~30% “laptop class” that earn disproportionately well and have their savings stored in those same markets.
  - zip1234 2y ago
    I'm not even sure that it is to the detriment of our domestic laborers. It certainly makes domestic manufacturing less competitive, especially the lowest skill/barrier to entry manufacturing. However, the US manufactures a LOT still, there are loads of reasonably well paying jobs for lower skill worker. I will say that housing and healthcare costs are high in the US but those are not things that are imported.

insane_dreamer 2y ago

The counterpoint to this is that the US as the reserve country means that it’s very cheap for the US to service its debt since it’s holds the money supply. It basically controls its own destiny in that sense.